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Financial Moves to Make in Your 20s

Jan 24, 2017 3 min read Ilana Polyak


As a marketing major, Andy Sherman expected he’d land a creative role, and he still hopes to find work in an advertising agency – someday.

But three years after completing his degree from Winona State in Minnesota, Sherman has more-pressing needs: a steady paycheck and health insurance. That’s because he has $50,000 in student loans and a $3,500 credit card balance. The temporary contract positions he’s had in marketing and advertising up to this point haven’t helped him get on steady financial footing, and he’s ready to start “adulting.”

“I think I should be farther along,” the 29-year old says. “But for some reason or another, things don’t seem to be working out for me.”

In January, Sherman, who lives in Minneapolis, will start a new job as a full-time loan officer at a financial institution. Though the job isn’t in his chosen field, he hopes it will bring him much-needed financial stability.

“It’s permanent, it pays more and has benefits,” Sherman says.

Strategic Andy Sherman testimonial

According to Pew Research Center, only 32% of millennials believe they earn enough to have the lifestyle they want, fewer than any other generation.

The way many financial experts tell it, the third decade of life is the time to lay a solid financial foundation. It’s the time to adopt good financial habits so they become ingrained, and it’s also the time when saving can be the most powerful, because money in the bank or invested in stocks and bonds can compound many times over, throughout the decades.

But that can be a tall order for recent grads like Sherman. It’s hard to imagine saving for retirement, or even shorter-term goals, such as a down payment on a house, when income is unstable and debt is crushing.

As a result, retirement “isn’t something I even think about,” Sherman says. His retirement savings come to less than $2,000.

Not surprisingly, only 32% of millennials Opens in a new window – those born between 1980 and 1995 – believe they earn enough to have the lifestyle they want, fewer than any other generation. Even with that burden, there are three important financial undertakings that should be on every twentysomething’s mind:


1. Start traveling your career path

For all the grief millennials get about growing up entitled, there is no denying they are in a tough spot. Two-thirds Opens in a new window of them graduate with student loans, whereas, 20 years ago, just half of students did. The average debt load of 2016 graduates was $37,000 Opens in a new window.

At the same time, the economy has shifted to one where higher education is a must for anyone hoping for financial stability. Over a lifetime, workers who have a college degree out-earn those who don’t by $1.3 million   PDF Opens in a new window.

That means twentysomethings must plot their career paths carefully, sometimes making tough choices. Sherman, for example, would like to continue exploring a creative position in advertising and marketing, but he recognizes that his future depends on economic stability in the present. “I’m trying to be realistic about the kinds of jobs I can get,” he says.


2. Learn to budget

A simple way to budget is with the 50/30/20 rule. It works like this:

  • Needs: No more than 50% of spending should go toward fixed expenses such as housing, insurance and food.
  • Wants: Only 20% of spending should be allocated toward wants, which includes eating out, vacations and even gas for your car, if it’s used for traveling other than necessary commuting.
  • Future: The last 30% of spending can be directed toward financial goals, such as retirement savings, building emergency funds and paying off debts.

While there may be little wiggle room in some spending categories like student loans, there may be flexibility elsewhere. For example, living with roommates until finances stabilize can make good financial sense. Opting for less-expensive health insurance options – either through an employer or on state healthcare exchanges – may help lower costs.


3. Save for a rainy day

While it’s important to start making inroads on retirement savings, it can be even more crucial to protect against financial hardship with emergency savings. A cash cushion can soften the blow of a job loss or a major expense. Cash reserves of three to six months can help twentysomethings ride out most situations. But there are variations to how much savings is necessary depending on individual circumstances. People who have their own businesses (including contractors) and those with uneven income, such as sales people who work on commission, need more savings.


Bottom Line

Twentysomethings like Andy Sherman are juggling a lot. They have record amounts of debt and may not yet have settled down into lucrative careers. Nonetheless, making even small moves now, including learning how to properly budget, can have a big impact on their financial health later.


Ilana Polyak is a freelance writer who specializes in personal finance and the financial advisory industry. Her work has appeared in The New York Times, Barron's, Kiplinger's Personal Finance, Bloomberg BusinessWeek and CNBC.com, where she is a frequent contributor.



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